Kansas City Star press pavilion sold for a fraction of its construction price

Sometimes you have to go a long way to get find out about important news taking place close to home.

Such was the case today with a routine, second-quarter earnings report from the McClatchy Co., based in Sacramento.

On the third page of the nine-page report, came a stunning announcement about the Kansas City Star’s most valuable piece of real estate, its press pavilion at 17th and McGee.

“On July 12, 2017, the company (McClatchy) entered into an agreement with R2 Capital, LLC to buy the Kansas City Star’s production facility, which will be structured as a sales leaseback transaction.”

Now, it’s been no secret that McClatchy had put not only the press pavilion but also The Star’s headquarters building at 1729 Grand up for sale several months ago. And back in March, publisher Tony Berg told editorial employees that the company had a buyer for the headquarters building.

But to the best of my knowledge The Star has not reported either sale. That seems very odd, doesn’t it?

One thing The Star has always been particularly good at is reporting real estate developments. And yet, it doesn’t report its own deals…I don’t know why Berg has not given the go-ahead to one or more stories about these sales, but, to me, it damages The Star’s credibility: You report on everybody else’s deals but not your own?

…The Star’s reportorial shortcomings aside, here are some things many people will probably want to know about these two deals:

:: The release said the transactions are expected to close later this year and bring McClatchy a total of about $42 million…The total asking price for both buildings had been $46 million, and the asking price for the press pavilion — which cost $200 million to build a decade ago — was believed to be about $30 million. The Star will lease back the press pavilion and continue to operate it and also transfer its editorial operation there.

:: The release gives no details about R2 Capital, but former KC Star business reporter Julius Karash, who has been tracking the sale of The Star’s buildings, found an R2 Capital company based in Chicago, which appears to be the likely buyer. R2 Capital, formerly known as South Street Capital, owns and operates more than 1.5 million square feet of commercial real estate in Chicago and Minneapolis.

:: The release identified the buyer of the headquarters building as “1729 Grand Boulevard LLC” — a creation of a local company called 3D Development. In an online story today, Kansas City Business Journal reporter Rob Roberts says 3D specializes in historic redevelopment. It has been involved, Roberts said, in numerous projects, “including the office conversions of the historic Corrigan Building at 1828 Walnut St., the Creamery building at 2100 Central St. and the Candle Building at 2101 Broadway.” It is not clear what 3D is planning to do with the headquarters building, although Berg told the editorial employees back in March that it was headed for commercial and residential redevelopment. As part of the deal, 3D is also purchasing surface parking lots north and south of the headquarters building, and a 3D official told Roberts a hotel was a possibility on one of the lots and a multi-story parking lot — for Crossroads District customers — on the other.

**

I indicated earlier that I communicated with Julius Karash about these real estate transactions, and I asked him to weigh in on them.

Here’s what Julius had to say:

Julius Karash

“It may come as a shock to some that McClatchy expects to garner only $42 million from the sale of the two Kansas City Star buildings, when it spent $200 million on the printing plant alone. Is that a good deal on the face of it? No. But I doubt that anyone could get a better deal, considering the state of the industry. Newspapers all over the country have been selling off their properties in an effort to bring in desperately needed cash. The St. Louis Post-Dispatch has been trying to sell its headquarters building for more than two years.

“McClatchy took on $2 billion in debt when it bought The Star and the other former Knight Ridder papers in 2006. Today’s second quarter earnings release says debt at the end of the second quarter was down to $858.7 million and that the company finished the quarter with $8.4 million in cash, resulting in net debt of $850.3 million. The company also has a $65 million revolving line of credit.

“…McClatchy revenues continue to slide southward. Total revenues were down 7.1 percent in the second quarter compared with a year ago, despite the fact that digital-only advertising revenues grew by 10 percent and digital-only audience revenues were up 6.7 percent.

“The Star is producing damn good journalism, and McClatchy is fighting like hell to survive. The news release says the company ‘remains committed to reducing operating expenses.’ We know the kind of pain that can cause.

“Only time will tell if these real estate sales and other measures will help The Star and McClatchy achieve a long-term future…I sure hope so.”

…As disappointed and puzzled as I am about The Star’s failure to report its own big real-estate deals, I join Julius in hoping McClatchy gets that debt down and that both McClatchy and The Star become financially successful at some point.

“You (i.e., the Star) report on everybody else’s deals but not your own?”

What’s surprising? The Star reports when other companies fire prominent employees or have internal battles, but they don’t give details on their own personnel conflicts. The Jason Whitlock fiasco is Exhibit A on that point.

Interesting you should bring up the Whitlock case, Mark…Back in July 2010, four months after I started this blog, I was still doing some blog posts for Hearne Christopher’s kcconfidential blog. Hearne and I had been debating whether Whitlock was really on vacation or whether he and The Star were in the process of terminating their relationship. I firmly believed he was finished, while Hearne thought he was on vacation.

I so strongly believed he was done that I prepared a Jason Whitlock “obit,” with the idea of publishing it on my blog after an announcement came. But Hearne (gotta hand it to the guy, he’s very quick) said, no, let’s run it NOW, on kcconfidential, while he, Hearne, would write a counter piece arguing that Whitlock’s column would return.

He ran both columns, and, of course, I was right. We had a lot of fun with that and I always appreciated him pushing me to take a risk and get my opinion out in the public domain. I think that helped embolden me to come out and say exactly what I thought as a blogger. That’s the most difficult part of going from straight reporter to blogger — finding your voice and cutting loose.

Les, I got that cap when I went to Skip Sleyster’s wake in 2009 with my former Kansas City Star colleague Joyce Smith. Brookfield Downs was the race track Skip wanted to see developed out by the stadiums. I always enjoyed reading Skip’s weekly “column” (which was an ad he paid about $400 a week for) in the Sunday Star Metro section, and it was great fun when he would visit the newsroom. I didn’t always agree with Skip, but I admired his grit and spirit.

Two things, if memory serves, The Star is actually one of McClatchy’s profit centers (bled dry to feed other McClatchy disasters). I could be wrong, but I’m pretty sure about that.

Secondly, is that printing press building not used for collateral somewhere on a note? Surely no bank in its right mind settled on McClatchy stock as collateral for a 200 million dollar expenditure. So who’s taking the hit, McClatchy, ot the bank? And if a bank is taking a major hit, how in the hell can McClatchy have a multi million dollar line of credit? I wish I could find a bank like that.

That’s just speculation, John, but pretty sound, considering The Star has always been extremely profitable. But with McClatchy’s annual reports, and quarterly reports, you don’t get breakdowns on how much each property makes or loses; you get the overall McClathy numbers. Back when CapCities owned The Star, I think it was making $30 million or more a year — profit. It was a license to print money, as well as news, for many, many years.